Industry News - PM

Hormel buys deli meat maker for $850 million


By Meatingplace Editors on 10/31/2017

Hormel Foods announced it entered into a definitive agreement to acquire Columbus Manufacturing, a premium deli meat and salami company, from Chicago-based Arbor Investments in a deal valued at $850 million.

"I can’t think of a better company that aligns to our heritage, values and purpose than Columbus," said Hormel CEO Jim Snee, in a conference call with analysts about the acquistion. Columbus has "an iconic brand with 100 years of heritage, old-world artisan preparations [and] has demonstrated an expertise in innovation," introducing prepackaged charcuterie-to-go and other products.

Columbus will continue to operate from California, where it has two plants in Hayward. It will report into Hormel’s Refrigerated Foods segment, enhancing a deli portfolio that already includes its Hormel, Jennie-O, Applegate and DiLusso brands, the company said in a news release.

Deli realignment

In fact, the addition of Columbus to Hormel's deli line-up will be a "catalyst to unite our deli organizations," Snee said in the call with analysts. "We have historically focused on growing our deli business brand by brand," with each business having a separate distribution structure and set of contact personnel.

This latest acquisition "will enable Hormel to be a total deli solutions provider with a single point of contact for customers," the CEO said. "By aligning our deli organization, we’ll be in a better position to serve our customers."

The addition of Columbus also will enable Hormel to move deeper into distribution channels such as club stores, “natural” departments and stores, and e-commerce. Hormel paid a higher premium for Columbus than it did in August for foodservice brand Fontanini, but Snee pointed out that premium deli sales — which comprise about 40 percent of Columbus's total sales — are "stickier, a more loyal consumer."

With its consumer base, diversified distribution, fast sales growth and comfortable margins, Columbus is a “grand slam” purchase, Snee said.

Hormel gets stronger

Stephens Inc. analyst Farha Aslam said the deal “provide visibility toward achieving [Hormel]'s long-term growth targets,” and noted in a report to investors that “Hormel is a high quality company with a balanced business model, strong cash flow and a pristine balance sheet.”

Columbus Manufacturing was founded in 1917. Its products are available at food retailers nationwide. Joe Ennen, CEO of Columbus Manufacturing, called the company “a millennial-focused brand,” with its focus on “quality, simplicity and time-honored recipes.”

Total annual sales for Columbus Manufacturing are about $300 million with an expected growth rate in excess of 5 percent. Hormel Foods expects this acquisition to be modestly accretive to earnings per share in fiscal 2018. Full-year accretion in fiscal 2019 is expected to be between 6 to 8 cents per share.

More to come?

In an answer to questions during the conference call, Hormel's executives would not say that the company would take a break from the acquisition hunt, despite Columbus being the third large acquisition this calendar year.

"Clearly we are financially able to make these acquisitions," Snee said. "The three so far this year have been in very different businesses.

"We want to make sure that we do things right, that we thoughtfully integrate the businesses, but we know that we have the ability to do more. And we'll do them at the right pace so as not to burden the organization too much."


 
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